Globalization has become a double-edged sword for countries to implement a beneficial tax policy. On one hand, there are increased opportunities for attracting foreign capital and the benefits that increased jobs and tax revenue brings to a society. However, there is also more tax competition among countries to attract foreign capital and investment. As tax competition has grown, effective corporate tax rates have continued to be cut, creating a race to the bottom. The global minimum tax proposed in Pillar Two aims to end tax competition by setting a floor for corporate tax rates with various corrective measures so that multinational enterprises’ income is taxed once in either source or residence country at a substantive tax rate. This chapter explains that Pillar Two is the first implementation of the single tax principle at the global level, breaks down the principles and policies that comprise Pillar Two, and anticipates what promise and pitfalls passage of the global minimum tax will bring. Pillar Two requires an unprecedented amount of coordination among countries for implementation, but it is reasonable to anticipate its success if it is implemented by all the G20 countries.

This chapter explores the prospects of Pillar One and Pillar Two. Fundamentally, Pillar One seems destined to fail, while Pillar Two is being implemented by a critical mass of countries. Pillar One is unlikely to succeed for three reasons. First, it requires a multilateral tax convention (MTC) among over 100 countries to be implemented. Second, because Pillar One is still aimed primarily at taxing the US digital giants (Big Tech), it is hard to envisage it being implemented without the United States. Third, Pillar One is premised on all the countries that have adopted DSTs repealing them. But DSTs are politically popular and, in some cases (e.g., the United Kingdom), brought in significant revenue. This chapter discusses options countries may have to tax Big Tech without Pillar One and then addresses the US response. For Pillar Two, it examines how Pillar Two will affect countries that have not adopted it yet, such as China and the United States, and Pillar Two’s impact on domestic tax incentives like tax holidays, accelerated depreciation, and tax credits.

The past decade has witnessed the creation of a new international tax regime (ITR). Since the advent of globalization in the 1980s and digitalization in the 1990s, the original ITR ceased to function as intended. The main problems were the increased mobility of capital related to intangibles, a relaxation of capital controls, and increased tax competition. The outcome was a significant fall in tax revenues that threatened the social safety net of the modern welfare state. The financial crisis of 2008 and harsh austerity measures led the public to pay attention to rich individuals and large corporations paying little tax on cross-border income. A new ITR has been created to resolve those problems. In particular, the United States enacted the Foreign Account Tax Compliance Act, which contributed for the OECD to develop a Common Reporting Standard for the automatic exchange of information; the OECD launched the Base Erosion and Profit Shifting project 1.0; and the EU enacted the Anti-Tax Avoidance Directives. These developments still have some limits, resulting in the advent of BEPS 2.0 consisting of two Pillars. The key question is how the new ITR will deal with inter-nation equity.

This chapter examines the reasons for, and policy behind, the programme of work that has developed a new international tax framework. In developing two "pillars", the OECD Secretariat and, more latterly, the Inclusive Framework, with the proposals in Pillar One, have broken new ground in proposing new taxing rights without the requirement of physical presence in the source or market jurisdiction. These profit allocation rules radically depart from the existing international tax framework. In addition there are other proposals that use formulaic calculations, residual profit split methodology and elements of formulary apportionment, allocating profits to the marketplace jurisdiction, ignoring the single entity concept, and departing from the arm's-length principle. In respect of Pillar Two, the proposalto prevent profit shifting is equally controversial. The proposals under Pillar Two contemplate a minimum level of tax paid on all internationally operating businesses. These proposals confront the international tax framework norm in the areas of transfer pricing, the use of intellectual property, residence taxation and, in particular, tax competition.

This chapter examines the reasons for, and policy behind, the programme of work that has developed a new international tax framework. In developing two "pillars", the OECD Secretariat and, more latterly, the Inclusive Framework, with the proposals in Pillar One, have broken new ground in proposing new taxing rights without the requirement of physical presence in the source or market jurisdiction. These profit allocation rules radically depart from the existing international tax framework. In addition there are other proposals that use formulaic calculations, residual profit split methodology and elements of formulary apportionment, allocating profits to the marketplace jurisdiction, ignoring the single entity concept, and departing from the arm's-length principle. In respect of Pillar Two, the proposalto prevent profit shifting is equally controversial. The proposals under Pillar Two contemplate a minimum level of tax paid on all internationally operating businesses. These proposals confront the international tax framework norm in the areas of transfer pricing, the use of intellectual property, residence taxation and, in particular, tax competition.